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The iPhone is Apple Doubling-Down On What It Does Best

To the general public, the iPhone 5C is not an old iPhone 5. It’s a new iPhone 5C, and the demand will be much greater than it was for last year’s 4s. The price of a new iPhone is now 16% less than it was last year, and demand should rise by at least that much (and I think most pundits are seriously discounting the attractiveness of color). Moreover, it’s no accident that the traditional closing advertisement was focused on the 5C. I expect the vast majority of ads to be the same, and the iPhone 5C to be the best seller in the line. Sure, it’s not $199 (unsubsidized), but it’s also not $649; to pretend nothing has changed is wrong.

Second, I expect Apple to move to a dominant position in the US market. iPhone has been gaining share for several years now, and the iPhone 5C at $99 will only accelerate that. I know the US market is special, but it still matters, particularly to Apple and a great number of app developers.

Third, this solidifies Apple’s hold on the Mercedes-Benz/BMW portion of the Asian market. Is it out-of-reach for the vast majority of consumers? Yep. But it will be aspirational, something you put on the table to show others you can afford it. And, to be clear, there are a lot of people that can afford it. Saying stupid things like “the iPhone 5C is equivalent to the average monthly salary in China” belies a fundamental misunderstanding of China, its inequality, and its sheer size specifically, and all of Asia broadly. Moreover, when you consider a Mercedes is tens of thousands of dollars more than a Toyota (and on down the line in luxury goods, for whom Asia is the largest market by far), $300 more isn’t that much.

Moreover, in Asia it’s Apple’s brand that is, by far, the biggest allure of the iPhone. Apps are free (piracy is mainstream), larger screens are preferred, and specs and customization move the needle with the mainstream far more than they do in the US. But no one else is Apple. Having a high price preserves that.

It is Asia, though, that is ground zero for potential Android-first development. While the 5C will move more iPhones, it will only very slightly slow Android’s massive market share domination, and it’s possible Apple will never break through in any significant way in markets like India or Indonesia.4 Moreover, the Samsung brand is very strong in Asia, and Korean culture as a whole is increasingly dominant; you can’t escape Korean pop, Korean soap operas are the most popular shows continent-wide, and they both include/endorse Samsung heavily. A combination of must-have Android apps and Samsung chic would be problematic.5

Apple, ultimately, has decided they’re ok with taking that risk.

As I wrote last week, strategy is about making choices, and Apple has decided to not even pretend to pursue market share, but instead embrace their up-market status. As long as they retain their app advantage, this will obviously be a profitable choice.